With the boom in the technology sector and electric vehicles, the new trend of automotive companies focuses on the growth capacity of software units.
Ford CEO Jim Farley predicts sales of automotive software services will grow by 1000% over the next few years.
“That’s going to be Ford’s fastest-growing revenue, and unlike our auto business, they’re sometimes talking about huge margins,” Farley said.
For his part, Alberto Torrijos, Lead Manufacturing Partner at Deloitte Latin America, emphasized in an interview that brands are investing in software-based solutions to create new possibilities in connectivity.
“They invest in the development of new technological facilities where brands or companies are effectively looking for alliances that provide these services and develop software-based solutions. On the other hand, there are brands that invest in their own software development,” Torrijos said.
Ford isn’t the only one venturing into this business, as in 2022 Volkswagen President Herbert Diess pointed out that automotive software will account for 90% of automotive innovation in the future. That’s why the brands are concentrating on developing their own operating system that manages the entire car and enables updates from the cloud.
Tesla, Elon Musk’s company, was one of the first companies to have software that allowed constant updates to the vehicle system, ignoring companies like Apple and Google for software development in their vehicles. In addition to promoting the electrification of the vehicle fleet, a trend has also spawned new companies.
Toyota plans to develop its own software platform by 2025. According to the company, the platform will focus on managing the vehicle’s most basic functions, but will also target autonomous driving.
Likewise, General Motors is developing software to be completed by 2025, in which the company has invested more than $30 billion. In early 2022, “Ultium” introduced an advanced software system designed to allow learning to be customized to the user.
Even BYD, a Chinese brand that has just landed in Mexico and is the world’s largest EV maker, has decided to develop its own smart car software and cancel an agreement previously struck with another Chinese company.
Qualcomm, in turn, announced the Snapdragon Ride Vision System during CES 2022, software that will enable autonomous vehicles to better analyze the situation on the roads they travel on. An agreement already exists with Volvo and Renault to integrate the new software technology into the vehicles of both brands over the next few years.
This, coupled with the boom in artificial intelligence, makes software one of the main axes of new cars.
Mexico and consumers
Software updates in the car catalog are presented as an opportunity that companies don’t want to miss to improve their sales margins through technological services that are sold at an additional cost to the final price of the car.
According to Deloitte’s 2022 Global Automotive Consumer Study, Mexican motorists are willing to pay less than 10,000 pesos for additional technology services: “Safety, including entertainment and connectivity, are the most valued technology topics for the Mexican consumer.” They would be willing to pay less than 10,000 pesos,” Torrijos explained.
The expert explained that the use of technology in vehicles has been something that Mexican consumers value so far, which is why automakers have to be very sensitive to the costs this entails for consumers in the country.
Although Deloitte notes that in a market where the trend is moving towards the power sector and the consumer is “increasingly informed”, mobility providers looking to offer subscription services for connected vehicle technologies may find this a challenge as most consumers worldwide do would you prefer to pay for these features up front as part of the vehicle purchase price.
In addition, the corporate trend is contributing to the gradual recovery in national vehicle sales, without reaching pre-pandemic levels. “We at Deloitte forecast that between 2024 and 2025 the Mexican automotive industry could reach the market level of 2015 and 2016, which was sales of 1.5 to 1.6 million light vehicles per year,” Torrijos pointed out.